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First Time Home Buyers Guide To Evaluate Potential Real Estate Investments
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First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

Dec 18, 2014

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We take an in-depth look at the various criteria, factors and elements that First Time Home Buyers should look at to evaluate their intended purchase, looking at everything from neighborhood elements to interior design. visit http://goo.gl/eDICFy for more detail.
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Page 1: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

First Time Home Buyers Guide To Evaluate Potential Real Estate Investments

Page 2: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

First Time Home Buyers Guide To Evaluate Potential Real Estate Investments

Page 3: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

Contents The Property Search 3

Understand what you want! 4 Location, Location, Location! 5 Profiling a Neighbourhood 7 The Transit Factor 8 The Walk Score 9

Pre-Purchase Criteria 10 New Condos 11

The Developers 11 Understanding your finances 12 The Sales Office 13

Resale Properties 15

Immediate Expenses 15 Can you add value to your property? 16 Generating value from your property 17

Post-Purchase Things To Think About 18 New Condos 19

Finances 19 Design & Moving Costs 20

Resale Properties 21 Invest now or later? 21 The Income Property 22

Conclusion 23 Sources 24

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The  Property  Search  Evaluate  Everything  

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Page 5: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

Understand  what  you  want  and  what  you  have  to  do  to  get  there!    

Identify  your  requirements  in  a  home   Understand  your  long-­‐term  plans   Understand  your  financial  position   Understand  your  responsibilities  

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Location!  Location!  Location!  The number one defining element of a property search is the desired location. The City of Toronto has over 140 neighbourhoods, as defined by the city, while others identify over 240 distinct neighbourhoods. A clear definition of what is a neighbourhood has yet to be established but many of Toronto’s neighbourhoods have come to be defined over the years by their demographics, their landmarks and of course, their culture.

It is common knowledge that the sought-after neighbourhoods are the priciest. However, what determines “sought-after”? Is it the convenience of downtown? or the luxury of living in a posh neighbourhood like Yorkville? Not really. Many neighbourhoods in the city have established price points because of the generic reasons listed above. However, it is important to look at prices from a trends point of view.

If a neighbourhood has declining property values, it is important to know if it is an area with slow development, no future for transit upgrades, lack of amenities, etc. All this shall be discussed in the next section, profiling a neighbourhood.

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Page 7: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

Know  your  needs?    Profile  select  neighbourhoods!  

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What  do  you  mean    “profile  the  neighbourhoods”?!  Profiling a neighbourhood lets you identify the amenities, conveniences, culture and community that a neighbourhood can offer a person wanting to invest and/or live in that area. It also helps interested buyers better understand their property better and identify what long-term potential gains can be derived from it.

What  should  I  look  for?  A neighbourhood should be looked at from a broad perspective, profiling its various characters, amenities, conveniences and opportunities. In addition to these, you must look at the growth of the neighbourhood based on current projects, proposed developments and current offerings. Here are some of the things you should look for:

1. Shopping Options, primarily for essential items - Grocery shopping, pharmacy, etc.

2. Transit Access. 3. Schools and Daycares. 4. Housing developments - types of housing and developments & number of new

developments and upcoming developments. 5. Amenities - Banking, gas stations, libraries, community centers, hospitals,

facilities. 6. Lifestyle & recreational elements - coffee shops, restaurants, social hubs,

movie theatres, parks, bike trail.

The above factors play a major part in determining the value of a neighbourhood.

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The  Transit  Factor  Toronto’s downtown core is expected to grow by 83% – from 71,000 to 130,000 – by 2031, in addition to a growth of 28% in employment within the same period. We see this growth with the development of condominiums on the waterfront and the rapid acceleration of projects within the packed downtown core. A recent TTC study has indicated that demand for transit into the downtown core will increase by 55% from 155,000 to 236,000 during morning peak hours, providing further evidence of urbanization.

What happens, however, when you make a specific region highly desirable by concentrating everything from jobs to real estate? Affordability goes down drastically. As Toronto’s busy downtown core becomes saturated with housing projects – on prime real estate no less – Torontonians must look outside the box to find more affordable options.

Accessibility becomes a driving factor for real estate prices. The closer a property is to transit or commuter highways, the higher the price. According to a recent report by REIN Canada, values of homes in various North American neighbourhoods with access to mass transit had premiums ranging between 3% and 40%, depending on the type of housing.

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Page 10: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

The  Walk  Score  

The walk score measures the ability to walk from a property to designated amenities, services and resources within a neighbourhood including transportation, schools and shops.

Transit has become a significant selling point, with many developers giving incentives such as free transit pass subscriptions. However, combine walkability with transportation and you have a golden selling point. To mention that a property is “5 minutes walk from a subway station” is an appealing concept that drives up property values and lets homeowners sell or rent at a premium. Not only that, being close to a subway means that the surrounding neighbourhood is likely to evolve over time, similar to what we see at Yonge & Eglinton with the rapid growth of new businesses, condominium projects and the under-construction Eglinton LRT line.

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Pre-­‐Purchase  Criteria  Understand  All  The  Factors  

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New  Construction  The  Developers  With nearly 200 builders in the GTA alone, judging who makes a quality product is not an easy task. There is some due diligence required on the buyers part to ensure they research who the builder is. There are many things you can do, including:

1. Looking at the developer websites to find and evaluate their project history. 2. Look at their past projects including information about the size of each project,

partnerships, location, delivery date, delays, etc. 3. Find reviews of developers or ask agents about their work history with certain

developers. Use resources like Tarion.

Visiting established, already built developments will provide you with a better understanding of what kind of end-result buyers can expect from a developer, including the material they use, the quality of the finish and overall appeal of the final product.

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Understand  Your  Finances  New developments typically require a 15-20% down payment, with $15,000-$20,000 at closing, which altogether amount to thousands of dollars. Additionally, a deposits time frame could easily be 2-3 years depending on the delivery date of the project. You are tying down a lot of money for a project and taking a risk for a very long period of time. Additionally, new constructions typically come with maintenance costs, which add to the mortgage costs per month, increasing your monthly financial outlay.

The key here is understanding the dynamics of the neighbourhood the project is going to be built in, understanding if there is going to be growth within the area, potential appreciation in one’s property and increased potential to re-sell.

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Page 14: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

The  Sales  Office  A sales office of a new construction is usually a very beautiful place to be in, with fresh paint, beautiful furniture and a fresh atmosphere. However, there are certain elements that first time home buyers should be aware of when they visit a sales office.

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Page 15: First Time Home Buyers Guide To Eval uate Potential Real Estate Investments

There are certain things you need to be aware of before you get caught up in the sales process:

1. Ceiling heights in a sales office are usually higher than in the property itself, giving you a more open feel than what you will get when you actually get the unit.

2. The furniture used within sales suites are high-end, designer furniture that most buyers cannot afford. Don’t be taken in by the aesthetics and envision the space being bare-bone and open for design.

3. The space has the best finishes, most of which are usually upgrades that you have to pay more for. Ensure you ask what these upgrades are and how much financial impact they will have.

Keep in mind the above points and you will be able to make a sound decision on your investment. Look into options such as hiring an interior designer or consultant to help you maximize the space with great furniture and design elements.

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Resale  Properties  

Immediate  Expenses  If the home is older than 1975, the number one question to ask is if there is any presence of asbestos. Prior to 1985, homes were not marked, noting if asbestos had been used. It is important to ensure a house is asbestos free as it can cause lung cancer and other severe lung diseases.

Roof integrity is another major consideration when looking at a home. A damaged roof can cost between $5,000 and $15,000 to replace, creating a major financial burden on the buyer. Sometimes the seller will take into account or cover the roof costs during the sale, something you should highly consider as a roof replacement makes the living space safer and adds value to your home.

Other things to look for are the conditions of windows and doors, state of the flooring, condition of plumbing & drainage and details about the heating system. These various elements, including immediate upgrades to bathrooms and the kitchen, are factors that can affect living conditions and the property value of your home.

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Can  you  add  value  to  your  property?    Adding value to your property should be PRIORITY #1 when investing in a resale property. With the ability to add value to your home, you are able to increase the property price, its appeal on the market should you ever decide to sell it and its long-term value. More for houses, expansion is a definite value-adder. Things that can be added to a property include an additional parking space, a pool, new flooring, renovating outdated fixtures & appliances and finishing off a basement. The BIGGEST value adder: renovating a kitchen. It is the social hub of a home and something buyers look for immediately when purchasing a property. If having an outdated kitchen lets you purchase a property for a very good price, it is one of the most-sound investments to make. By later re-modeling a kitchen, you add 80-85% – sometimes beyond 100% – of the cost to the value of the home. Other value adding options include:

1. Renovating the driveway and improving the curb appeal. 2. Creating a better, more appealing floor plan – perhaps converting a 2-

bedroom property to a 3-bedroom property. 3. Painting the interiors and exteriors, installing energy efficient appliances,

utilities, fixtures, etc. Going green is a trend we are seeing these days.

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Generating  value  from  your  property  More than just adding value to your home, you would love to get some value back in the form of positive cash-flow. By creating an income property, you not only add value to your property but also bring in positive cash-flow to off-set your mortgage payments. This is a must, especially for first time home buyers getting a large space for a good price.

For those who are at-home, self-employed professionals, having the benefit of a dedicated office – especially with a separate entrance – is a big thing, truly utilizing your property space to the max. Additionally, having a workspace at home is especially important for those who have a growing family and have a large commute to work and school.

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Post-­‐Purchase  Things  To  Think  About  

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New  Construction  

Finances  After a purchase of a new condominium is completed, there are many financial elements that need to be looked at. Closing costs are about $15,000-$20,000, required for the finalization of the property ownership. Buyers must also be aware that you pay occupancy fees after the building has been constructed until the building has been registered, after which you begin paying your mortgage on the property. These costs should be understood well before the offer to purchase a property, avoiding falling in a financial black hole.

 

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Design  &  Moving  Costs     A new construction usually does not come with any furniture or design elements, unless the developer has specifically stated otherwise. It is important to consider the costs of purchasing furniture and design elements to fill the space. We strongly advise to get an interior designer if you are intending to purchase new furniture, to let them find furniture and design elements that will maximize the space that you have. Of course, you should consider the move and the moving costs involved. If you are intending to move in with your own belongings, get a quote from a moving company in advance and ensure you contact multiple to get the best deal. Moving costs can go from a few hundred to a few thousand dollars and you don’t want to get a shock a few days before moving. Also, for condominiums especially, ensure you let building management know in advance that you are moving in and what you will need, including the use of the freight elevator (if they have one) and maybe parking space for the moving trucks.

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Resale  Properties  

Invest  now  or  later?  Once your purchase a resale property, you should evaluate if optional investments should be done immediately or over time. For instance, improving the curb appeal will be a great way to promote your new home to family and visitors, but if it is a few months prior to winter, you may want to do a partial improvement to the landscape (structural design and such) and then do the gardening and other elements for a later date.

A resale property comes with caveats that buyers usually need to address immediately including doing upgrades to security, a fresh coat of paint to at least the interior and general spring cleaning around every nook and corner. This takes time, and depending on the size of the property and what needs to be done, significant investment as well. However, the potential is that you refresh and bring life to your new home.

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The  Income  Property  If an income property was one of the criteria’s you selected your new place on, you may want to consider if getting it going immediately is of value to you.

To completely re-do a space, furnish it and make it livable can range in the five digits, sometimes between $25,000 and possibly $40,000, depending on the size of the income property suite. What you will get in immediate return is an increase in property value by at least 100% of the cost of the investment. It is comforting to know that at least your house holds the value of your investment, which is a really positive thing to keep in mind.

The real benefit is the positive cash flow from the investment. Say your mortgage payments equate to about $2,000 per month and the cost of putting a 1 bed plus den suite is $30,000, generating $1,000 a month in rent. What you get is $12,000 in rental income per year, covering half your mortgage. In just over 2½ years, you recoup your investment - which has already added value to your property - after which it all goes towards the mortgage payments.

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Evaluating a home and its various surrounding elements is the key in making a sound real estate investment decision. As a first time home buyer, you are making a bold step towards becoming a home owner and taking on considerable financial burden. In the process of doing so, you should get the best possible investment that not only adds value to you and your family in the short-run but dictates significant long-term benefits as well, including increased property value, positive cash flow and various intangible benefits.

Conclusion  

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Sources  “10 Ways to Increase The Value of Your Home”. HGTV Front Door. 4 March, 2008. Nov, 2012. <http://www.frontdoor.com/sell/10-ways-to-increase-the-value-of-your-home/1231>. Campbell, Don R., Reuter, Melanie, and Epp, Allyssa. “The GTA Transportation Effect – The Impact of Transportation Improvements on Housing Values in the Greater Toronto Area”. REIN Canada. 2 April, 2012. Nov, 2012. <http://myreinspace.com/downloads/research_reports/m/research_reports/122000.aspx>. “Comparing Neighbourhoods for Sustainable Features”. Canada Mortgage and Housing Corporation. Nov, 2012. <http://www.cmhc-schl.gc.ca/en/co/buho/sune/>. Dratch, Dana. “20 things that can alter the value of your home”. Bankrate.com. 9 May, 2005. Nov, 2012. <http://www.bankrate.com/brm/news/real-estate/buyerguide2004/increase-resale1.asp>. Gan, Tyrone, and Dawson, Bill. “Downtown Rapid Transit – Expansion Study. (Phase 1 Strategic Plan)”. Toronto Transit Commission. Sept, 2012. Nov, 2012. <http://www3.ttc.ca/PDF/About_the_TTC/DRTES_Final_Report_-_September_2012.pdf>. Manza, Christopher, and McGovern, D’Arcy. “Exclusive: How much are homes in your Toronto neighbourhood?”. 9 Oct, 2012. Nov, 2012. <http://www.theglobeandmail.com/life/home-and-garden/real-estate/exclusive-how-much-are-homes-in-your-toronto-neighbourhood/article4520994/>. Miller, Johnathan D., and DiRocco, Charles J. “Emerging Trends in Real Estate® 2013 - Canadian Edition”. PWC. Oct, 2012. Nov. 2012. <http://www.pwc.com/en_CA/ca/real-estate/publications/pwc-emerging-trends-in-real-estate-2012-11-30-en.pdf>. “Toronto Light Rail Transit Projects”. Metrolinx. Nov, 2012. <http://www.metrolinx.com/en/projectsandprograms/transitexpansionprojects/crosstownproject.aspx>. Walk Score. Nov 2012. Get Your Walk Score – Find Walkable Apartments and Rentals. 2007. <http://www.walkscore.com/>.